Steinway Musical Instruments Inc.

Steinway Musical Instruments Inc.

Steinway Musical Instruments Inc. Securities Settlement

The lawsuit was settled for additional disclosures in the proxy statement mailed to shareholders. The following is a summary of the proceedings in this lawsuit: ‘On July 1, 2013, Steinway Musical Instruments, Inc. (Steinway or the Company) and Kohlberg & Company, L.L.C. (Kohlberg) announced that they had entered into an agreement (the Kohlberg Merger Agreement) pursuant to which affiliates of Kohlberg would acquire Steinway. A copy of the Kohlberg Merger Agreement was filed with the United States Securities and Exchange Commission (the SEC) on July 2, 2013. Subject to the terms and conditions of the Kohlberg Merger Agreement, Steinway stockholders would receive $35 in cash per each share of Steinway common stock (the Kohlberg Proposed Transaction). The Kohlberg Merger Agreement contemplated, among other things, that Kohlberg would complete a tender offer (the Kohlberg Tender Offer) for all outstanding shares of Steinway common stock followed by a second-step merger. On July 10, 2013, plaintiff Joseph Tillo, Jr., on behalf of himself and all others similarly situated, filed a Verified Class Action Complaint captioned Tillo v. Steinway Musical Instruments, Inc., et al., C.A. No. 8713-VCP (Del. Ch.), alleging that the Steinway board of directors (the Board) breached their fiduciary duties in connection with the Kohlberg Proposed Transaction, and that Kohlberg aided and abetted those breaches. On July 15, 2013, affiliates of Kohlberg filed a Schedule TO (together with any exhibits or amendments thereto, the Schedule TO) with the SEC to initiate the Kohlberg Tender Offer. Also on July 15, 2013, Steinway filed a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits or amendments thereto, the 14D-9) with the SEC which, among other things, summarized the Kohlberg Merger Agreement and provided an account of the events leading up to the execution of the Kohlberg Merger Agreement and a summary of the valuation analyses conducted by the Board financial advisor, Allen & Company LLC (Allen & Co.). On July 15, 2013, plaintiff Ernest Soriano, on behalf of himself and all others similarly situated, filed a Verified Class Action Complaint captioned Soriano v. Steinway Musical Instruments, Inc., et al., C.A. No. 8729-VCP (Del. Ch.) alleging that the Board of directors breached its fiduciary duties in connection with the Kohlberg Proposed Transaction, and that Kohlberg aided and abetted those breaches. On July 22, 2013, plaintiff Irving Yeagle, on behalf of himself and all others similarly situated, filed a Verified Class Action Complaint captioned Yeagle v. Steinway Musical Instruments, Inc., et al., C.A. No. 8740-VCP (Del. Ch.), alleging that Board breached its fiduciary duties and that Kohlberg aided and abetted those breaches. On July 22, 2013, plaintiff Soriano filed a Verified Amended Class Action Complaint alleging, among other things, that the Board breached its fiduciary duties in connection with the Kohlberg Proposed Transaction, by, among other things, entering into preclusive deal protection provisions and that Kohlberg aided and abetted those breaches, and that the 14D-9 omitted material information. On July 25, 2013, plaintiffs Tillo, Soriano and Yeagle (collectively, Plaintiffs) and defendants Edward Kim, Kyle R. Kirkland, David Lockwood, Joon W. Kim, Thomas Kurrer, Don Kwon, John M. Stoner, Jr., Michael T. Sweeney, Gregory S. Wood, Kohlberg Management VII, L.P., KSTW Holdings, Inc., KSTW Acquisition, Inc., Kohlberg and Steinway filed a Stipulation and Proposed Order of Consolidation, Class Certification, and Appointment of Co-Lead Counsel, which provided for, among other things, the consolidation of the Tillo, Soriano, and Yeagle actions as the Action, appointed Co-Lead counsel for Plaintiffs, and certified a non-opt out class consisting of all persons who held shares of stock of Steinway (excluding defendants) at any time during the period from and including March 12, 2013 through the date of consummation or termination of the Kohlberg Proposed Transaction. On July 25, 2013, Plaintiffs filed a Motion for Preliminary Injunction. On July 26, 2013, defendant J.S. Kim filed a Motion to Dismiss with Prejudice on the grounds that he did not participate in the review or approval of the Kohlberg Proposed Transaction. On July 29, 2013, the parties filed a Stipulation and proposed Order for the Production and Exchange of Confidential and Highly Confidential Information, which was entered by the Court on July 30, 2013. On July 30, 2013, the Court entered the Order of Consolidation, Class Certification, and Appointment of Co-Lead Counsel. On August 9, 2013, the special committee of the Board received a definitive proposal from Paulson & Co., Inc. (Paulson) as part of the go-shop process contemplated by the Kohlberg Merger Agreement, to acquire all outstanding shares of Company Common Stock for $38 per share in cash. At a meeting on August 11, 2013, the Board determined that the Paulson proposal of $38 per share constituted a Superior Proposal under the Kohlberg Merger Agreement, and sent a Notice of Superior Proposal to Kohlberg. On August 12, 2013, before the market opened, the Company announced in a press release its receipt of a Superior Proposal under the Kohlberg Merger Agreement. Later on August 12, 2013, a representative of Kohlberg contacted the Company to inform the Company that Kohlberg did not intend to match Paulson proposal and would provide a waiver of its right under the Kohlberg Merger Agreement to match any Superior Proposal within three business days. On August 13, 2013, in response to another offer to acquire the Company by Samick Musical Instruments Co. for $39 per share, Paulson notified Allen & Co. that it would increase its offer to $40 cash per share of Steinway common stock. That same day, the Board determined that the proposal from Paulson was in the best interests of Company stockholders, and the Company terminated the Kohlberg Merger Agreement and entered into a merger agreement with affiliates of Paulson (the Paulson Merger Agreement) pursuant to which Paulson affiliates would acquire all of the outstanding common stock of Steinway for $40 per share in cash (the Paulson Transaction) via a tender offer (the Paulson Tender Offer). On August 14, 2013, the Company issued a press release announcing the Paulson Transaction. On August 22, 2013, Plaintiffs dismissed the claims against defendants Kohlberg Management VII, L.P., Kohlberg & Company, L.C.C., KSTW Holdings, Inc. and KSTW Acquisition, Inc., which was confirmed by Order of the Court on August 23, 2013. After arm-length negotiations, counsel to the parties in the Action reached an agreement-in-principle concerning the proposed Settlement of the Action. Those extensive negotiations and discussions led to the execution of a memorandum of understanding (the MOU) on August 21, 2013. The MOU provided for an agreement in principle to settle the Action (the Settlement), subject to additional confirmatory discovery and approval of the Court, on the basis of the inclusion of additional disclosures in a new Schedule 14D-9 which was filed with the SEC on August 21, 2013. On August 26, 2013, the parties notified the Court regarding the MOU and of Plaintiffs intention to conduct confirmatory discovery relating to the proposed Settlement.’

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